Index Fund Advisors
Founder & President
Mark Hebner is Founder and President of Index Fund Advisors, Inc. (IFA), author of the popular book, "Index Funds: The 12-Step Recovery Program for Active Investors", and is a respected speaker, news contributor and provider of authoritative information and education on investing.
"Index Funds" has received praise from financial industry and academic luminaries, including John Bogle, David Booth, Burton Malkiel, as well as Nobel Laureates Harry Markowitz and Paul Samuelson. It was nominated as one of the three all-time greatest investment books, along with the writings of John Bogle and Warren Buffett.
IFA avoids the futile, speculative, and unnecessary cost-generating activities of stock, time, manager, and style picking. Contrarily, IFA employs a disciplined, quantitative approach that emphasizes broad diversification and consistent exposure to the structural trends of global publicly-traded markets.
IFA is a true fiduciary financial advisory firm, compelled by law to act in the best interests of clients, always – something the investing public, mistakenly, believes all financial advisors are required to do.
Mark contends that one can be a passive investor but still apply active intelligence to the process of investing. He takes an evidence-based academic approach to this process and illustrates it with art and science.
Mark was a member of the Young Presidents' Organization for 19 years and is currently a member of the World Presidents' Organization and the Chief Executives Organization.
Prior to founding Index Fund Advisors in 1999, Mark was President, CEO and co-Founder of Syncor International (previously a public company - SCOR) from 1975 to 1985. In Jan. 2003, Cardinal Health acquired Syncor for approximately $850 million. As a division of Cardinal Health, it is the largest radiopharmaceutical network in the United States.
BS Nuclear Pharmacy, University of New Mexico
MBA, University of California at Irvine
Assets Under Management:
Nothing contained in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
It depends on your desired standard of living in retirement. It also depends on how your assets are invested. Just to give you some quick guidance, most people don’t spend as much in retirement compared to their working years. Most retirees’ replacement rates are 60-80% depending on how much you earned while working. For those who find themselves in the top quartile of income earners in America, your replacement is more like 60%. 10-20% of that replacement rate will come from Social Security with the remainder coming from personal savings and pensions. So if you have a household income of $200,000, you will probably only need $120,000 for retirement. Why is this the case? You are no longer saving for retirement and you are no longer paying certain taxes like Social Security taxes. $30,000 to $45,000 will come from Social Security with the remainder ($75,000 to $90,000) being funded by personal savings.
If you invest passively via a globally diversified portfolio of index funds and work with an independent fiduciary wealth advisor, you can expect to afford to safely withdraw 4-5% of your entire retirement asset base throughout retirement. For example, if your entire retirement asset base is $2,000,000 at retirement, you can afford to safely withdraw $80,000-$100,000 per year, adjusting for inflation.
A good first step would be to find out what your individual risk capacity score is as well as take a retirement analyzer to see if you are on the right track. Both of these tools are easily accessible online and will put you on the right foot in terms of determining your retirement readiness.
$5,000 invested for the future is best served through a Target-Date Fund of low cost, passively managed index funds. If those aren’t available for whatever reason, passively managed index based ETFs are a great way to go as well.
You should always be looking to build a globally diversified portfolio of lower cost index funds that matches your risk capacity. Since we are looking at a 10-year time frame, you want to take a conservative to moderate amount of risk with 20-40% of your assets invested in riskier stocks and 60-80% of your assets in safer, short term, high quality bonds. Again, look to lower cost index funds and globally diversify to build your overall portfolio.
The argument made for investing in gold has to do with it being a safe-haven when markets are in calamity. During the last financial crisis, gold prices soared on the belief that the capital markets could possibly seize given insolvency. The Federal Reserve’s quantitative easing and the TARP legislation from Congress ultimately allowed global markets to circumvent this problem, but gold ended up being one of the best investments during the 2007-2009 time period.
With that said, there is no robust historical evidence that gold is a good investment outside of this very specific time period. Over the last 40 years it has not even kept up with general inflation although prices have been extremely volatile. In other words, it is a very bumpy ride for a gold investor who ended up losing money in real terms. This is exactly what we would expect with any type of precious metal or commodity. Since it does not produce a profit, like corporations do, its only value is based on the supply and demand of the market. It is speculative by nature. Any sort of speculative investment has a 0% expected return.
Some advisors suggest a 5-10% allocation to gold in a portfolio for diversification, but if gold’s value does in fact manifest itself during times of financial calamity, then a 5-10% allocation in a portfolio is going to do little to protect you.
A much better solution is to stick with a globally diversified portfolio of stocks and bonds by utilizing lower cost index funds and buying, holding, and rebalancing.
“Alpha” refers to the excess performance of a fund after it has been adjusted for risk or “Beta.” Beta is typically characterized as “market risk.” We would measure the correlation between a particular manager’s fund and the overall stock market. For example, if the fund goes up by 20% when the market goes up by 15%, then we would say that the fund has a Beta of 1.33. Because the fund is more volatile than the overall market, we would expect the fund to outperform the overall market overtime. This might have nothing to do with skill by the fund manager, rather just the particular set of stocks the fund has exposure to. Once we control for Beta, then we can see how much “Alpha” the manager is able to generate above what we would expect to be compensated for in terms of market risk.
It is important to note, there have been advancements in the field of financial economics in terms of Beta. Multiple Betas have been discovered such as market capitalization (size), relative price (value), profitability, and momentum. We must control for all of these factors before we can attribute “alpha” to a particular fund manager.
R-squared measures how much the variability in returns for a particular fund is explained by the benchmark. In other words, it measures how well the benchmark tracks the overall performance of the fund. We would typically want to see something above 0.95, which means that the benchmark tracks the fund over 95% of the time. This is important because we want to make sure we are properly benchmarking a particular fund. If there is a substantial mismatch between the benchmark and the fund, then we may be making false conclusions about metrics such as “alpha.” A practical example would be to compare a manager who focuses on International Growth Stocks to the S&P 500. Two completely different samples and therefore it is not a proper benchmark.